Management of Industrial Relations

What is Voluntary Retirement Scheme ?

The Voluntary Retirement Scheme (VRS) is the most humane technique to provide overall reduction in the existing strength of the employees. It is a generous, tax free severance payment to persuade the employees to voluntarily retire from the company. It is also known as “Golden Handshake’ as it is the golden route to retrenchment. Though the eligibility criteria for VRS varies from company to company, but usually, employees who have attained 40 years of age or completed 10 years of service are eligible for voluntary retirement. This scheme applies to all employees including workers and executives, except the Directors of a company.

Advantages of VRS

  1. There is no legal obstacle in implementing VRS – as is predominantly encountered in retrenchment under the labour laws.
  2. It offers to the employee an attractive financial compensation than what is permitted under retrenchment under the law.
  3. Voluntary nature of the schemes precludes the need for enforcement, which may give rise to conflicts and disputes.
  4. It allows flexibility and can be applied only to certain divisions, departments where there is excess manpower.
  5. It allows overall savings in the employee costs thus lowering the overall costs.
  6. It offers the best and humane route to retrenching excess workforce.
  7. Lucrative settlement prevents resentment.

Disadvantages of VRS

  1. Some of the good, capable and competent employees may also apply for separation which may cause embarrassment to the management.
  2. It creates a sense of fear and uncertainty among those employees who stay with the company.
  3. Severance costs may outpace productivity gains.
  4. Trade unions and individual workers may protest against the operation of the scheme and these protests may disrupt operations.
  5. Operation of the scheme may create a bad reputation for the company.

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